Relations between India and Nepal are close yet fraught with difficulties stemming from geography, economics, the problems inherent in big power-small power relations, and common ethnic and linguistic identities that overlap the two countries' borders. In 1950 New Delhi and Kathmandu initiated their intertwined relationship with the Treaty of Peace and Friendship and accompanying letters that defined security relations between the two countries, and an agreement governing both bilateral trade and trade transiting Indian soil. The 1950 treaty and letters stated that "neither government shall tolerate any threat to the security of the other by a foreign aggressor" and obligated both sides "to inform each other of any serious friction or misunderstanding with any neighboring state likely to cause any breach in the friendly relations subsisting between the two governments." These accords cemented a "special relationship" between India and Nepal that granted Nepal preferential economic treatment and provided Nepalese in India the same economic and educational opportunities as Indian citizens.

In the 1950s, Nepal welcomed close relations with India, but as the number of Nepalese living and working in India increased and the involvement of India in Nepal's economy deepened in the 1960s and after, so too did Nepalese discomfort with the special relationship. Tensions came to a head in the mid-1970s, when Nepal pressed for substantial amendments in its favor in the trade and transit treaty and openly criticized India's 1975 annexation of Sikkim as an Indian state. In 1975 King Birendra Bir Bikram Shah Dev proposed that Nepal be recognized internationally as a zone of peace he received support from China and Pakistan. In New Delhi's view, if the king's proposal did not contradict the 1950 treaty and was merely an extension of nonalignment, it was unnecessary if it was a repudiation of the special relationship, it represented a possible threat to India's security and could not be endorsed. In 1984 Nepal repeated the proposal, but there was no reaction from India. Nepal continually promoted the proposal in international forums, with Chinese support by 1990 it had won the support of 112 countries.

In 1978 India agreed to separate trade and transit treaties, satisfying a long-term Nepalese demand. In 1988, when the two treaties were up for renewal, Nepal's refusal to accommodate India's wishes on the transit treaty caused India to call for a single trade and transit treaty. Thereafter, Nepal took a hard-line position that led to a serious crisis in India-Nepal relations. After two extensions, the two treaties expired on March 23, 1989, resulting in a virtual Indian economic blockade of Nepal that lasted until late April 1990. Although economic issues were a major factor in the two countries' confrontation, Indian dissatisfaction with Nepal's 1988 acquisition of Chinese weaponry played an important role. New Delhi perceived the arms purchase as an indication of Kathmandu's intent to build a military relationship with Beijing, in violation of the 1950 treaty and letters exchanged in 1959 and 1965, wdd1 which included Nepal in India's security zone and precluded arms purchases without India's approval. India linked security with economic relations and insisted on reviewing India-Nepal relations as a whole. Nepal had to back down after worsening economic conditions led to a change in Nepal's political system, in which the king was forced to institute a parliamentary democracy. The new government sought quick restoration of amicable relations with India.

The special security relationship between New Delhi and Kathmandu was reestablished during the June 1990 New Delhi meeting of Nepal's prime minister Krishna Prasad Bhattarai and Indian prime minister V.P. Singh. During the December 1991 visit to India by Nepalese prime minister Girijad Prasad Koirala, the two countries signed new, separate trade and transit treaties and other economic agreements designed to accord Nepal additional economic benefits.

Indian-Nepali relations appeared to be undergoing still more reassessment when Nepal's prime minister Man Mohan Adhikary visited New Delhi in April 1995 and insisted on a major review of the 1950 peace and friendship treaty. In the face of benign statements by his Indian hosts relating to the treaty, Adhikary sought greater economic independence for his landlocked nation while simultaneously striving to improve ties with China.

Bhutan

Despite the long and substantial involvement of India in Bhutan's economic, educational, and military affairs, and India's advisory role in foreign affairs embodied in the August 8, 1949, Treaty of Friendship Between the Government of India and the Government of Bhutan, Thimphu's autonomy has been fully respected by New Delhi. Bhutan's geographic isolation, its distinctive Buddhist culture, and its deliberate restriction on the number and kind of foreigners admitted have helped to protect its separate identity. Furthermore, Bhutan's relationship with China, unlike Nepal's, has not become an issue in relations with India. Bhutanese subjects have the same access to economic and educational opportunities as Indian citizens, and Indian citizens have the right to carry on trade in Bhutan, with some restrictions that protect Bhutanese industries. India also provides Bhutan with developmental assistance and cooperation in infrastructure, telecommunications, industry, energy, medicine, and animal husbandry. Since joining the UN in 1971, Bhutan has increasingly established its international status in a concerted effort to avoid the fate of Sikkim's absorption into India following the reduction of Sikkim's indigenous people to minority status.

Data as of September 1995